Indian economy has dualism. On the one side there is a subsistence sector while on the other is a modernized developing sector. Thus Indian economy is an under-developed economy leaning towards economic development. The nature of Indian economy can be explained by its following characteristics:
1. Indian economy is an under-developed economy. The per capita income of certain countries like America, England, Japan, Germany etc. is much higher than that of some countries like India, Pakistan, Ceylon, Bangladesh etc. The economies of the former are known as Developed Economies and that of the latter are known as Under-developed Economies.
The main features of Indian Economy as an under-developed economy are as follows: (1) Per capita income is less as compared to almost all countries of the world. (2) The standard of living, level of consumption and efficiency of the people is very low. (3) On the one hand there is low per capita income and on the other there is inequality in the distribution of income and wealth. (4) There is too much dependence on agriculture but agriculture is backward. (5) There is slow growth of industries and also paucity of some important industries. (6) There is a shortage of banking and credit facilities, specially in rural areas. (7) In a vast country like India, the means of transport like rail, road, water and air are insufficient. (8) About 15 per cent of the world population lives here. Thus, there is a much pressure of population here. (9) There is lot of unemployment and under-employment here. (10) The rate of capital formation is low and it is about 20 per cent as compared to 39 per cent of Japan. (11) There is a scarcity of able and efficient entrepreneurs. (12) The social institutions like caste system, joint family system, law of inheritance, customs, religious systems are a hindrance in the economic development of the country.
According to Prof. Reddaway, “The main characteristic of Indian economy is its poverty. It is also a main indicator of its under-development.”
2. Indian Economy is a mixed economy. Just after independence the industrial policy of 1948 was adopted after the First Five-Year Plan. The industrial policies of 1956, 1977, 1980 and 1991 aimed at economic development of the country on the basis of a mixed economy. The main features of Indian economy as a mixed economy are: (1) Existence of Public sector, (2) Joint or National sector where both – the public and private sectors work together, (3) Existence of private sector, (4) Existence of cooperative sector for the economic development of the poor and middle class, (5) Special encouragement to the establishment of small and cottage industries reducing the inequality in the distribution of income and wealth and unemployment.
The public sector has done a commendable job to establish basic industries like iron and steel, machine building, chemical etc. on the basis of the policy-framework of a mixed economy for economic development. The transport services like railways, airlines and roadways are in the public sector while the road transport (particularly the goods transport) is run by the private sector. Though these services serve both the urban and rural areas yet they are largely urban based.
According to Dr. K.N. Raj, “Although Indian economy has been a mixed economy yet the element 0/this mixture has still framed it like a capitalist economy, not like a socialist economy.” The reason for this is that still the significance attached to the private sector in the economy is more than the public sector.
3. Indian economy as a planned developing economy. Indian economy has a large traditional rural sector and a small modern urban sector. In rural India, the economic activities are mainly agricultural while the main industries are in the urban part. After independence, India has adopted the path of economic planning to achieve the objective of economic growth. This was done under the leadership of Late Prime Minister Pt. Jawaharlal Nehru after surveying physical, capital and human resources of the country India’s First Five-Year Plan was adopted in 1951, Second Five-Year Plan in 1956, Third Five- Year Plan in 1961, Three One-Year Plans in 1966, Fourth Five-Year Plan in 1969, Fifth Five-Year Plan in 1974, Sixth Five-Year Plan In 1980 and Seventh Five-Year Plan in 1985, One-Year Plans in 1990, Eighth Five-Year Plan In 1992 and in 1997, Ninth Five-Year Plan in 1997 and In 2002 Tenth Five-Year Plan has been adopted which is to be terminated in 2007.
There has been an improvement in the economic condition of the country than before, after the adoption of Five-Year Plans. That is why Indian economy is called as Developing Economy.
4. Federal Economy: Besides the above three characteristic features of Indian economy, it has also a federal character provided by the Indian Constitution. As per the constitution, the power to regulate the economic life of the people is distributed between the Centre and the States. The Centre owns the full responsibility of guiding and controlling most of the major economic activities (if necessary) of the country. But a large part of the important economic activities have been assigned to the States. For example, power generation is mostly in the hands of State Electricity Boards under the State governments, even though the Central Government has a large say so far as the installation of power plants is concerned. Thus, there are two types of the government institutions dealing with the economic activities of the country viz. one at the Centre and the other at the State level.